Business and management

UBS’s rogue trader trial

A calculated choice gone wrong

ON THE 27th day of his trial Kweku Adoboli (pictured) finally appeared at the witness box to defend himself. The former UBS trader, accused of having caused a loss of $2.3 billion at the Swiss bank, heard two new charges against him at Southwark Crown Court before spending the rest of the day giving lucid but at times highly emotional evidence.

Dressed in a black suit, red tie, and white shirt, Mr Adoboli denied the two additional counts of false accounting. The charges “do not add to the indictment against him, but were inserted to clarify allegations being made,” the judge explained to the jury. Mr Adoboli initially faced four criminal charges, on two counts of fraud and two counts of false accounting, all of which he also denies.

Mr Adoboli sought to rebuff testimonies made by previous witnesses and allegations made against him by the prosecution. He argues that his colleagues on the exchange-traded funds (ETF) desk knew about the umbrella, a mechanism or secret fund the prosecution has alleged Mr Adoboli used to conceal risk exposure and losses made on his trades. In their evidence, the three other former traders on the desk (John Hughes, Christophe Bertrand and Simon Taylor) have each sought to play down their knowledge of the umbrella and denied complicity in its use (although Mr Hughes admitted using it).

Mr Adoboli reeled off a list of names of other employees at the bank he says knew about his trading methods, some of whom have given evidence at the trial: Darren Bailey, Henry Chu, John Ossell and Rory Boulton. Mr Adoboli told the court his trading methods were not deployed by anyone else at the bank. He denied that they were “a gamble”, but rather a “calculated choice”. He claims they were designed to achieve the same purpose as others methods used at UBS: to offset costs incurred on the desk’s book and generate profits.

Mr Adoboli also said that Mr Hughes was the effective desk supervisor from summer 2007 when the official head of the desk, Mike Foster, left the bank. Mr Hughes was formally appointed to the role in March 2009, Mr Adoboli said. Mr Hughes denies holding the position.

According to Mr Adoboli, Mr Foster’s departure from the desk, and the loss of another senior figure, Will Owain, soon afterwards, meant that he and Mr Hughes were left running the ETF desk’s $50 billion book on their own. At 27 and 24 years respectively, we were “just babies”, the defendant said. Mr Adoboli was in tears, describing Mr Foster as his “mentor”.

Earlier in the day, Mr Adoboli also broke into tears talking about his father, who worked for the United Nations. During Mr Adoboli’s childhood, the family moved frequently and lived in Ghana, Israel, and Syria. Mr Adoboli attended a Quaker boarding school in the north of England and then went on to study at Nottingham University. He started his career with UBS after a successful summer internship at the bank.

Mr Adoboli was also visibly distressed when telling the jury that he spent nine months in custody at Wandsworth prison following his arrest on September 14th 2011, before being released on bail. The trial continues.

Read our previous coverage of the trial:

Martingale gambler: Some gamblers double their bet after each loss and continue to do so until they eventually win—or run out of money. So allegedly did Kweku Adoboli

I am always weary when the Economist places the voice of the actual person/subject buried so deep in the text. By the time you reach anything this man has to say, you;ve spent two paragraph scanning 'the facts' in that pseudo objective, yet often slightly snide voice. This means that we've already made up our minds abou the subject by the time he speaks, through this carefully guided text. This is a common trope of the Economist- just thinking of a recent article about rehabilitating the Niger Delta. It basically went on for paragraphs about shareholders interests versus the local criminality. The article then goes on to blur with the informal market. By the time we reached the part about suffocating lands and peoples, we had already been lead to decide that they were simply in the way of shareholders' interests- externalities. See a pattern?

These derivatives are usually one way bets on the direction of the markets. The usual underlying assumptions of the log normality of returns may or may not hold. We do NOT live in a Gaussian world and the Central Limit Theorem may not hold.

Even genius can fail (Long Term Capital Management, 1998) Strategies such as butterfly spreads are too tame for these risk takers.